In that case, the law firm committed possible malpractice regarding the perfection of a client’s lien security interest rights. The issue came to light in November 2008, and the client sued for malpractice in March 2012. Clearly, the lawsuit was filed more than one year after the facts alleged to be malpractice.

“The statute of limitations for legal malpractice is one year from the time the cause of action accrues. Tenn. Code Ann. § 28-3-104(a)(2). When the cause of action accrues is determined by applying the discovery rule. Under this rule, a cause of action accrues when the plaintiff knows or in the exercise of reasonable care and diligence should know that an injury has been sustained as a result of wrongful or tortious conduct by the defendant. Shadrick v. Coker, 963 S.W.2d 726, 733 (Tenn. 1998).”

As I said in my prior post, I’m not condoning legal malpractice, nor suggesting that you should play hard-ball in collection of unpaid invoices for services that involved malpractice. But, as I said in my last post, if you sue a client for unpaid bills, it’s more than likely going to result in that client claiming malpractice, whether it’s merited or not.

If you think that such a claim will be raised from vindictiveness or tactic planning, then any lawyer should sit on the unpaid bills for services for at least a year. It’s an easy summary judgment / failure to state a claim upon which relief can be granted issue.

(Note: Actually, I don’t get that question very much, since I spend a good deal of time on the front end, explaining the process and rights to clients, so they know if they can’t recover fees.)

Here’s why: Tennessee follows the “American Rule” on awarding attorney’s fees which states that “a party in a civil action may recover attorney fees only if: (1) a contractual or statutory provision creates a right to recover attorney fees; or (2) some other recognized exception” applies. Cracker Barrel Old Country Store, Inc. v. Epperson, 284 S.W.3d 303, 308 (Tenn. 2009).

The contract provision allowing attorney fees to be recovered has to be very specific. In the Cracker Barrel case, the contract at issue provided that the prevailing party should recover “all costs and expenses of any suit or proceeding.” The Tennessee Supreme Court held that this language was not specific enough to award attorney fees (instead, it allowed recovery of court costs and litigation expenses).

This is an important issue, as the ability to recover your expenses and costs as part of your action will be a big consideration in any decision to file a lawsuit. Lawyers are expensive. Keep that in mind on the front end, when you’re preparing a contract or agreement, and get very specific text allowing for recovery of attorney fees.

In an opinion issued this past Friday, the Court of Appeals revisited the statute in Capital Bank v. Oscar Brock, No. E2013-01140-COA-R3-CV – Filed June 30, 2014 (see full text here). The case followed the established precedent of Sterling Ventures and its progeny.

This new case is notable in two respects:

Courts can and will resolve §35-5- 118(c) issues at the Summary Judgment level, where it is only a matter of applying the valuations against the foreclosure bid price. In fact, this new opinion weighs some of the evidence, in finding that the defendants valuations were were “formed
months or even years before or after the time the Property was sold at foreclosure.” This was a major victory in the original Sterling Ventures case, since borrowers want to make these issues a “fact” question, forcing a trial and delay of judgent.

Courts continue to look at percentages when determining what “materially less” means. Sterling Ventures and the later opinions all say the courts want to avoid setting a “bright-line percentage, above or below which the statutory presumption is rebutted.” That has basis in the legistlative history of the statute, where the lawmakers used “material” based on its usage in child custody cases. Nevertheless, the courts continue to apply a percentage test; in this case, spread was 15.8% and the sale was upheld.

This Court shot down a number of other arguments, including: those based on the amounts of several post-foreclosure appraisals; based on the Bank’s ultimate sale-listing price; and an argument that the Bank committed “fraud” by bidding a lower amount when it planned to market the property at a higher amount.

The ultimate take-away on this remains the same as in the past.

Get an appraisal at or near the time of the proposed sale.

Bid an amount that is reasonably tied to the amount of your appraisal (or other reliable/admissible valuation).

Summary Judgment is a proper way to proceed, provided the foreclosing creditor was cautious and acted with this statute in mind.

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Disclaimer

The statements and opinions voiced here are my own and not of my law firm. This blog and any links have been prepared for general informational purposes and are neither legal advice nor a solicitation to provide legal services. This information is not intended to create a lawyer-client relationship, and any use of this blog does not constitute a lawyer-client relationship. You should seek counsel from a qualified lawyer for any legal issue before taking or delaying any action or making any decision, as some of the concepts discussed may be subject to exceptions and qualifications.